Credit and economic risk collide when it comes to debt issued by Eskom. The damage is exacerbated by serious operational and medium-term management issues. Ensuring reliable supplies of raw materials should be a top priortity, but hasn’t been.
Moody’s is considering a multi-notch downgrade of Eskom’s foreign and local currency issues. Eskom’s debt is not guaranteed explicitly by the South African government. Still, it would be an unusual scenario where the government was prepared to let Eskom “go to the wall” due to the knock-on effects on our currency, capital flows and ability to raise new debt at competitive rates.
In related news, Moody’s is blaming a computer error the the AAA rating of some of the more complex securitisations they rated. This has raised the interest of programmers and finance people alike. It would seem convenient to blame a programmer (with four legs, horns and a little beard, perhaps). However, a rating agency takes responsibility for the entire process of rating an issue. Subjective “sense checks” are an important part of the final decision.
S&P rated most these instruments consistently with Moody’s. I suppose it is possible they made the same coding error.